Consumer packaged goods companies historically haven’t needed to build relationships with the people who use their products. Instead, they have focused on retail selling as their main product outlets. But as CPG brands and many of the core brick-and-mortar retailers they historically relied on lose market share to industry disruptors, the landscape is changing — and CPGs need to adapt or risk falling further behind.
There are several reasons many large CPGs might have trouble connecting with their customers. For one, selling to consumers is an entirely different business from selling to retailers. CPGs have thrived by creating strong brands they market effectively through wide-reach mediums such as TV while working closely with retailers to purchase and merchandise their products.
Now, new customers want to see product groups that make purchasing or subscribing interesting. And digital brands and subscription startups, often led by passionate owners, can create and launch disrupting programs within short time periods. Meanwhile, it generally takes CPGs more than two years to even establish a direct sales channel.
When they do eventually decide to start going direct, CPGs often follow the misguided path of selling aggressively on only Amazon or trying to copy Amazon and create an “everything” e-commerce store. Selling on Amazon has benefits, but it also makes it difficult to acquire buyer information and create a real relationship between the brand and the consumer. The competition, which in many categories includes Amazon’s growing private-label brands, encourages very low prices, leaving sellers with no margin and little information about the people who buy their products.
CPGs also often hope for extra sales by simply offering goods on their websites. But without the proper budget or a focus on creating customer relationships and marketing in a very competitive environment, results are lackluster at best, typically making up just 1 percent of total sales. Lack of media spending combined with a lack of direct-to-consumer marketing expertise often fails to drive customers to their site, and pricing conflicts where lower prices can be found elsewhere also contribute to disappointing results.
Breaking the Mold
While most CPGs have yet to begin a meaningful transition to direct sales, two brands have taken significant steps forward. First, pet supply giant PetSmart acquired Chewy.com for $3.35 billion, making it the largest e-commerce acquisition in history. PetSmart, valued at $8.7 billion in 2015, appears to be making an enormous effort to adapt to changes in consumer shopping behavior and take back some of the market share lost to upstarts such as Chewy and, of course, giants like Amazon.
Additionally, food and beverage titan Nestlé has reportedly purchased a majority stake in Blue Bottle Coffee, an Oakland-based company that sells directly to customers online and operates 40 stores in the United States and Japan. This deal comes after Nestlé’s 2016 purchase of direct seller Proactiv Skin Care.
But even companies ahead of the curve are still in the earliest stages of selling direct. These acquisitions and partnerships are just the beginning of what’s next — a true omnichannel world is ahead of us. CPGs and manufacturers will need to increasingly focus on direct sales and creating relationships with customers, but change will be slow.
Putting the ‘Consumer’ Back in ‘Consumer Packaged Goods’
CPGs that want to remain resilient in the face of changing consumer behaviors should consider taking these steps toward creating new relationships with their customers:
1. Bundle Products
Acquiring new customers can be expensive, but selling multiple items is a way to help offset that cost. So instead of selling only toothpaste, sell that toothpaste within a larger oral care package. This strategy can also reduce costs for consumers, who would likely pay a lower price for all the items in one package compared with individual purchases. Bundling products can create more satisfied customers if you can meet their needs with one purchase or delivery instead of several.
2. Solve Problems Holistically
Customers purchase products to solve a problem — but they usually don’t have just one issue at a time. Someone who buys a hair coloring product is likely also interested in shampoo, conditioner, softener, or repair treatments as well as hair gels and brushes. Offering a host of related products that work in conjunction with one another will help your brand stand out among your competition and build long-lasting consumer relationships.
3. Hire for Change
Hire people whose sole job is to focus on direct sales. Ensure their training teaches them to understand your brand’s customers and to truly dazzle them with your products, brand message, and real customer service. Until now, CPGs have put all their focus on putting interesting products on retailers’ shelves, and changing this mindset throughout a company will require new personnel, new incentives, and new training programs.
4. Don’t Do it Alone
Initiating a new direct sales channel is expensive and takes time. Most companies begin with cheap, pay-as-you-go solutions for e-commerce, fulfillment, analytics, and customer service. These solutions might be easy to set up, but they’re often rudimentary — and customer expectations are anything but rudimentary now. Very few platforms are truly scalable, with many using and loosely connecting multiple vendors, leading to a lack of communication between parties. Building systems in-house is costly and extremely slow. The safest way to approach the process is to get help from someone who has been down this road and can lead you to success.
As CPGs awaken to the reality that consumers’ shopping habits aren’t the same as they were just five years ago, they’re also facing challenges in adapting to the brave new world of direct sales. With the right help and a well-thought-through strategy, CPGs can conquer the transition and begin to create long-term customer relationships and establish their right to survive in the long run.